Thursday, September 20, 2012

It expects to raise RM837.5mil from the initial public
offering (IPO) of 670 million units on Bursa
Malaysia 's
Main Market. The IPO represents 19.7% of the REIT's total listing of 3.4
billion units. Based on a retail price of RM1.25 per unit, the total market
capitalisation of IGB REIT upon listing will be approximately RM4.25bil.

The pricing of IGB REIT with a forecast yield of only 5.1% annualized
for its remaining six months’ results of 2012 and 5.37% fort he full year
of 2013 is no surprise, given that prices of quality listed REITs have gained
substantially in recent months prior to Aug 2012 causing their yields to
decline as investors sought stability in predictable dividend income.

Will IGB REIT
perform as well upon its debut on the Main Market come Sept 19, 2012?

To be sure, IGB REIT too will have the balance sheet for acquisitions.
Upon listing, its debt will stand at about rm1.2 billion or 25.8% of its
estimated total assets of rm4.6 billion.

At is indicative pricing of rm1.25 which is still subject to
finalization is the maximum retail pay – IGB REIT is selling itself at
1.26 times its pro forma NAV per unit of 99.6 sen.

IGB REIT too intends to invest in its real estate used primarily for
retail purposes in Malaysia and overseas and was granted first right of refusal
by its sponsor, IGB Corp, to all its future retail properties and mixed used
development with retail component.

IGB has commenced work on Mid Valley Southpoint to complete in 2015.Another
potential mall is the planned rm6 billion Southkey Megamall in Johor Baru in
which IGB has 70% stake following a JV agreement.

IGB REIT, a unit of property developer IGB Corp Bhdintended to distribute up to 100% of its distributable income for the
period commencing from the date of establishment until Dec 31, 2014, and
subsequently at least 90% on a half-yearly basis.

Its first distribution, which will encompass the
period of its listing until its financial year-end on Dec 31, 2012 (FY12), will
be paid within two months after FY12.

IGB REIT will invest in a diversified portfolio of
primarily income-producing retail real estate in
Malaysia as well as overseas.

The retail offer of 201 million units represents
approximately 5.9% of the total units upon listing. 24 million of those units
will be made available to the public via balloting. The remaining 167 million
units are reserved for application by eligible directors and employees. The IPO
will see 469 million units available for institutional offering at a price to
be determined by a bookbuilding exercise. This represents 13.8% of the total
units upon listing. The retail offering will be opened to the public on Aug 23,
2012 while the institutional offering will start on Aug 28, 2012.

The listing expenses are estimated to be RM27mil and
will be funded via internally generated funds. IGB REIT would utilise the funds
contributed from the rental income of its properties. The expenses will be
fully settled within one month of the listing.

Prior to its establishment, IGB REIT did not have any
portfolio of real estate save for Mid Valley Megamall and The Gardens Mall.

Its total revenue comprises of gross rental income and
other income earned from its properties, which include car park income amongst
others. IGB REIT has forecasted revenue of RM197.8mil and RM408.1mil for the
forecast period 2012 and 2013 respectively, which assumes that the first
financial year is the six-month period ending Dec 31, 2012 and an establishment
date of July 1, 2012.

The
proceeds from the IPO would be utilised for the company's future expansion
activities. If this listing is successful, Tan said IGB Corp would consider two
other REITS in office/commercial and hotel/hospitality properties. The listing
of IGB's retail REIT is to unlock the value of its retail assets - Mid Valley
Megamall and The Gardens Mall, which are owned by IGB Corp's 75% subsidiary KrisAssets Holdings Bhd.

KrisAssets has proposed to sell both the malls and
related assets to IGB Corp for RM4.6bil, which will be paid for in cash and the
issuance of the 3.4 billion units in IGB REIT. KrisAssets had also proposed the
670 million units by Mid Valley City Gardens Sdn Bhd through the IPO.
It had intended to distribute the remaining 2.73 billion units as well as the
cash proceeds from the sale and the IPO to its shareholders at a later date.

Going Forward …

Over the next three years, the earnings per unit and distribution per
unit will be primarily driven by high end The Gardens Mall as the current
average rental base remains low.

The Gardens Mall represents 32% of the total REIT’s NLA, and its
average rental only stood at rm8.74 psf as at May 2012 compared with rm10.75
psf at Mid Valley Megamall. About 54% of The Gardens Mall’s NLA is due to
expire in 2013.

IGB REIT’s pipeline of assets is looking dry. Although the
sponsor has inked a deal to build a Mid Valley City in Johor, the construction
of the mall will only start in about two years time. The sponsor is exploring
other potential markets in Penang and even
overseas.

Hence the injection of assets from the sponsor will be remote and the
REIT will have to compete in the market for third party assets.

Post IPO, the REIT will be geared at 26%, marginally below the average
gearing of the REIT sector.

Given the gearing
level of 26% and assuming a comfort level of 40%, IGB REIT is believed to have
additional RM663 million for new acquisition.

The REIT could utilize the fund raising mechanism of placements
amounting to 20% with its substantial shareholder base of rm3.4 billion to
raise up to rm850 million in new funds to sufficiently acquire sizeable
neighbourhood malls.

The REIT indicated that it will concentrate on organic growth
opportunities rather than on new asset acquisitions in the short to medium
term. There are plenty of asset enhancement initiatives opportunistic within
the two malls particularly as market observers expect FY2013 to see strong
rental reversions, as 54% of the NLA will be expiring.